Intel realigns business to fuel Net economy

Intel Corp. last week enacted a major policy shift in an ongoing effort to recast itself as something more than the world's leading supplier of microprocessors and chipsets.

Speaking to financial analysts at a semi-annual meeting in New York, Intel executives said the company will shed its product-driven focus for one led by end markets-part of its evolution to a provider of "building blocks" for the Internet.

The move was viewed by observers as both necessary and fraught with risk. "I think it's a sign of the times and where they are," said Drew Peck, an analyst at SG Cowen Securities Corp., Boston.

According to the plan, Intel will integrate its Architecture Business and Microprocessor Products groups into a new Intel Architecture Group to be co-managed by executive vice president Paul Otellini and senior vice president Albert Yu.

The new unit will intertwine Intel's product know-how and market-creation efforts to address specific computing sectors such as servers and workstations, desktop PCs, and mobile platforms.

"When we combine these platform building blocks with complete solutions for the marketplace, it should add great value to organizations using or getting on the Internet," Yu said in a statement.

While Intel characterized the change as a periodic realignment to keep pace with the changing computer market, the restructuring marks a significant shift in how the company will identify and tackle new opportunities. Analysts said the move is also a rec- ognition by Intel that it must fundamentally alter its approach to break into emerging networking and communications markets.

"They're late to the party," Peck said. "They're a company that has been dominated by microprocessors, but they're entering a business where microprocessors no longer dominate the market."

The reorganization is significant because the company will stop developing products in separate engineering pods, each focused on a different computing segment. Rather, Intel will set up groups that will share common technology resources, and will tailor microprocessor, chipset, motherboard, and software development toward individual end markets, like desktops or notebook PCs.

The move reflects the continuing segmentation of the computer market and Intel's push to dominate all aspects of it-from high-end servers to mobile devices.

"If we were back in the old PC days, I don't know that this reorganization would have been necessary," said Intel spokesman Howard High. "But with these clients, and servers, and the speed of change with the Internet, we felt we needed to make some changes to" better address the market.

Just how nimbly the juggernaut will execute its turn is a matter of some debate. Peck sees the shift as a dramatic one that may take Intel two to three years to complete.

"This isn't one of your typical restructuring [plans]," he said. "This goes right to the heart of their business. They have acknowledged that they're at the end of the road when it comes to microprocessors, and that they need to make a change."

While the new product-development scheme is designed to serve Intel's broadening customer spectrum, the Architecture group will also engage a separate 1,000-employee contingent to accelerate market creation. Intel last week said it has authorized an investment of $100 million to identify new opportunities at Internet and e-business solutions providers and Web integrators.

The thinking is that by helping these companies to market, Intel will increase the volume of users accessing Internet services via Intel products. "We've structured the new Intel Architecture Group to work more effectively with various companies in the industry to provide complete solutions to the Internet economy," said group co-leader Otellini. "This should speed up the adoption and implementation of e-business solutions-all running on Intel architecture."

But by defending two fronts-its traditional processor market and new opportunities in the Internet arena-Intel could find its rear guard under attack by Advanced Micro Devices Inc. and its Athlon chip, according to Peck. "They're exposed on the MPU side," he said.